Analyst and columnist Rob Enderle has made an incredible claim: that Facebook knowingly defrauded investors in its IPO.
I've tried to avoid piling on Facebook during its IPO troubles. And I don't agree with the "fraud" accusation. But his reasons for coming to that conclusion are pretty devastating, taken together. They are:
1. CEO Mark Zuckerberg and a few other investors got insanely rich in the IPO, and at the expense of rank-and-file investors, who lost money. Therefore, if those investors were misled, it's fraud.
2. Facebook's ability to monetize is based on 1 billion users. That monetization is based on adverting. Advertising requires that people go to the facebook.com site with a PC browser in order to see the ads. But most do not. Most view Facebook through mobile apps or aggregators, and don't see the ads.
3. The ads don't work. People are not buying things from Facebook advertising, for the most part. Facebook is a lousy advertising medium, at least so far.
4. Facebook claims that social networking activity tells them who you are, so they can serve up highly relevant ads. But they haven't demonstrated this. Facebook ads tend to be highly irrelevant and poorly targeted. (Check yourself. Are Facebook's ads relevant to you?)
5. Facebook isn't really a corporation. Zuckerberg's total control of the company means that claims that it's a real corporation are false. The control structures normally designed to reign in a CEO don't work. Zuckerberg runs the company like his own private LLC.
I don't think Facebook's IPO was fraudulent. I think Zuckerberg and its investors really believe in the potential upside of the company.
But I do think that their belief is something of a faith-based initiative. So far, the company has not actually demonstrated anything that could justify a $100 billion valuation or anything near it.